How Strategic Behavior of Natural Gas Exporters Can Affect the Sectors of Electricity, Heating, and Emission Trading during the European Energy Transition

The European demand for natural gas imports may change through the energy transition, which may affect natural gas exporters’ strategic behavior and consequently the natural gas prices. Changes in natural gas prices in turn influence the European energy sector in terms of gas consumption in the short-term and investments in the long-term. The present paper develops a large-scale partial equilibrium market model formulated as a mixed complementarity model (MCP) with conjectural variations. This model considers the global natural gas market and the European markets of electricity, heating, and emission trading in one equilibrium. We apply this model to investigate the long-term impact of market power by gas exporters on the mentioned energy-related markets on the horizon of 2050. The results of the study show that a decrease in the market power by gas exporters decreases natural gas prices, leading to cheaper electricity and CO2 prices in the mid-term. However, a very tight emission cap in 2050 can result in the reverse phenomenon.